Question

8) A 5-year 5.8% annual coupon bond currently trades at 103. If interest rates decline by 25 basis points (bps) you estimate the bond will be worth 104. If interest rates increase by 25 bps you estimate the bond will be worth 102. Based on this information what is the duration of this bond? a) 0< duration 52.0 b) 2.0< duration 54.0 c) 4.0< duration 56.0 d) 6.00< duration 58.0 e) None of the above 9) What is the convexity of the bond in the problem above? a) 0<= convexity 5100 b) 100< convexity s200 c) 200< convexity 5300 d) 300< convexity 5400 Page 2 of 10

Answer 1

page: ol -gnswey bond = 5.8 f. annual coupon trades at = (03 Ba) înterest srate deelines - 25 basis points interest ate invrease have to estimate 25 bps bond woith a 1oy and 25 bps an a 102 fbond value Sen sitivity 1 bond - change in change in bond xate (rou - 102) (0.0025 - (-0. 0025) 5 x10-3 Seneritvity - y00 Sensitivity Duration value 400 3. 88 years Duration - so option (b) 2.0< daration s4.0

90) converity the bond. convexity senstivity page:02 rate at which can be taken as the xequin esf changes fer change yield in sate . chonge change in vale change Sensitivity cormextly -1 ) ৩afe 0,0025 -0.0025 0.005 400 400 0.005 Answer option A convesity SO s100